Jake Attfield, Head of Strategy, Fair4All Finance
Millions of people in the UK are navigating life’s shocks without a financial safety net. Among those in financially vulnerable circumstances, more than one in four hold no insurance at all – a gap that is widening as rising costs push households to cancel or downgrade their cover.
The Financial Conduct Authority’s Financial Lives survey found that in the 12 months leading up to May 2024, approximately 6.7 million UK adults either cancelled, reduced cover or chose not to purchase insurance to save money or due to affordability issues. This isn’t just about products lost to affordability pressures; it is about resilience lost for individuals, communities and the wider economy.
The insurance sector finds itself at a pivotal moment in relation to its use of AI technologies. Our new report ‘Has AI got us covered?’ finds that 95% of insurance firms are already adopting AI, which is higher than other sectors. This is delivering impressive gains in customer experience and operational efficiency.
Yet the question our research poses is an important one: will these tools optimise the status quo for existing customers, or help redesign models to include the millions currently left outside it?
What the evidence says
First, let’s consider the scale and shape of the gap. Our research shows that there are 20.3 million people in financially vulnerable circumstances in the UK. 26% of them hold no insurance product, leaving them exposed to financial damage which households that do have cover can absorb. Cost of living pressures are a dominant driver of reduced cover or non-purchase, which further erodes resilience.
Technology is also advancing in the industry at a faster pace than inclusion is. 95% of insurers report using AI, with most deployments focused on streamlining onboarding, expediting claims and cutting cost‑to‑serve.
These benefits of course largely accrue to current, standard-risk customers. These improvements are meaningful, but they rarely change the economic or design assumptions that keep excluded groups out.
There’s a risk that use of these emerging technologies could even increase exclusion. The adoption of new models has the potential to result in worse outcomes for consumers in vulnerable circumstances, such as algorithmic bias and even potential discrimination, if systemic errors in underlying assumptions exacerbate socio-economic biases or lead to decisioning based on protected characteristics.
It is important that effective guard-rails are in place to prevent misinterpretation of data causing unfair and incorrect assessments of risk.
Further, AI presents real potential that has not yet been systematically harnessed. Our research has surfaced promising directions: pay-as-you-go models and micro-insurance and parametric models with rapid payouts based on trigger events to help bring down premiums.
Open banking and broader data can also strengthen affordability and risk assessment for people with greater financial vulnerability. These tools can bring pricing closer to lived reality and distribute protection more fairly.
Importantly, there is a huge growth dividend to inclusion. Our recent report with WPI Economics identified that improved access to affordable car insurance, in turn supporting greater employment, could unlock £1.5 billion in economic growth over the course of the current parliament (£369 million per year).
Why hasn’t this potential translated into market level change? Our findings point to systemic obstacles:
- Perceived low commercial incentive
- Low understanding of the protection gap
- Standardisation being embedded in distribution channels
What ‘good’ looks like: from optimisation to inclusion
AI is already improving journeys and reducing costs, but efficiency without inclusion risks hard-coding inequity into insurance. Tech alone can’t close the protection gap; progress will happen when industry pair new tools with an open culture, inclusive processes and a commitment to reach new markets.
That means using research and co-creation to build trust and understanding, rethinking premiums and payments, and applying rapid user-centric prototyping. Policy and regulatory enablers (dormant asset funding, sandboxes and robust AI governance) can de-risk testing and help scale what works while maintaining consumer protection.
Industry now needs to lead a proactive, sector wide push to close the protection gap by designing around people, not processes:
- Invest in lived‑experience research and empathetic engagement to spark commercially viable propositions for excluded groups.
- Make strategic use of the FCA Innovation Hub and TechSprints to test AI/GenAI with real‑world feedback, drawing on international sandbox best practice to balance experimentation and protections.
- Build cross‑sector partnerships (insurers, insurtechs, community voices, policymakers) to align measures of success and scale inclusive products that prove their effectiveness.
The timing couldn’t be better. The Government’s Financial Inclusion Strategy and Modern Industrial Strategy, our own expanded dormant assets funding and ability to support, and evolving AI governance such as the FCA’s innovation pathways, create space for testing and learning.
We’re encouraging industry to make proactive use of these mechanisms to trial AI-enabled propositions with real-world feedback loops.
Fair4All Finance can play a convening role here: bringing together insurers, insurtechs, community voices and policy makers to align on shared understandings, success metrics and experiments that can scale if they work.
The choice industry needs to make
An alternative is within reach, and the time has never been better: using the same technologies to ensure fair pricing, remove friction and build propositions that meet people where they are – from social renters and gig workers to households on variable or low incomes.
By adopting new approaches, we can shrink the protection gap and grow the market at the same time. The technology and the market are waiting. Now, we need to direct innovation towards the people who have been outside the system for too long, building a fairer, more resilient market in the process.
